Is a Reverse Mortgage Right for You? Here are the Pros and Cons
You’ve been retired for five years now and you’ve loved every minute of it. You worked hard during your 40-year career, but now you’re all about play. As you sit down to pay your monthly bills, you wonder if your retirement income and savings are really going to last. Your portfolio looks fantastic, but you and your wife are healthy, happy, and plan to live well into your Golden Years. Will you have enough? Your wife suggests looking into a reverse mortgage. Not a bad idea, but what are the pros and cons.
The Good
The grass is greener on the side of the fence for many who take out reverse mortgages on their homes. This financing option gives seniors much-needed additional cash when they need it. It also alleviates their monthly mortgage payments, which for those living in more expensive cities in the nation can equate to an extra couple of thousand dollars each month. If your mortgage payment is eating you alive, removing this line item from your budget may make a huge difference in your financial quality of life. To understand the benefits of an American Advisors Group or other lender’s reverse mortgage, you must understand how they work.
Briefly, an appraiser will come to your property and assess your home’s value just as he or she would if you were putting your home on the market. You will sell – so to speak – your home to the reverse mortgage lender, i.e. you will receive that assessed value in either a lump sum, monthly payments, a line of credit, or a combination of these options. You will not sign the deed of your house over to the lender, however. You remain the deeded owner of your home. You also retain residence until such time as you decide to move or pass away. It’s that simple. You keep your home without the need to make monthly mortgage payments.
The Bad
Sound too good to be true? It really isn’t, but there are admitted caveats to this mortgage as there are to any mortgage. Eventually, the loan must be paid back, and that is done through the sale of the home. Upon your passing, your home will not go to your children unless you specify it does. Rather, it will go to the lender for sale. For example, in an AAG Reverse mortgage, AAG will sell your home to recoup the money it put into it. This is how the loan is paid back. If you want to leave your home to your kids, they must pay the reverse mortgage back, so this is one sticky part of the process unless your children don’t want the home, which turns it back into a good.
The other “bad” that accompanies a reverse mortgage is you remain responsible for property-related fees such as property taxes and homeowners association payments. You lose your mortgage payment, but you still have to pay your property taxes, so keep this in mind. You also have to pay closing costs, as you would with a second mortgage. In some cases, the closing costs can be financed in the reverse mortgage and should be covered if your home’s value increases over the years. You can also pay them outright to avoid any complications. It depends on how set you are financially in your retirement.
Finally, in some cases, a reverse mortgage can affect other federal benefits, so make certain you discuss this option with your financial advisors and benefits experts. You don’t want to go into this blindly and find out you took a chunk in your disability income. Overall, however, many seniors enjoy the benefits of a reverse mortgage and the financial freedom it gives them. If the experts think this option is right for you, take it into account.
